We talked to Cindy McLaughlin of Envelope about real estate trading activities and COVID-19.
First of all, how are you and your family doing in these COVID-19 times?
Cindy McLaughlin: We’re getting through OK, thank you! I hope you and yours are well.
Tell us about you, your career, how you founded Envelope.
Cindy McLaughlin: 2020 is my 20th year post-MIT MBA involved in startups, and I’m still learning and having fun. For most of those years, I’ve been a tech founder, CEO, or very early employee.
I was recruited in early 2016 to turn Envelope — then mainly some really innovative + technical IP — into a business. It was an exciting opportunity for me since I had a tech-company management background, but no real estate or zoning expertise. My gig just prior was as employee #3 at a prison-technology startup. Five years later, we know what we’re doing, and we’ve hit our stride.
How does Envelope innovate?
Cindy McLaughlin: We innovate in two key ways: the technical, business model.
· Technical: We took a different tack from most tech startups by choosing to go deep instead of broad — which may be the only way to pull off a useful data play in real estate, which is so incredibly hyperlocal.
- We started with 3D “massing” IP — that took the 4300-page zoning code of NYC and built it into 3D software. We were the first to take this on back in 2008. This allowed us to calculate and visualize real estate development potential under the spatial constraints of zoning.
- Over the last couple of years, we have layered in trend data to understand the likely future *value* of real estate beyond its spatial potential. Since Q1 and COVID, we’ve been looking at predictors of distress. Coupled with our 3D data and a proprietary data infrastructure for accuracy, our ability to identify mispriced properties has become second-to-none.
· Business model: we have two lines of business.
- The first, tech-enabled global professional zoning services, offers better-faster-cheaper massing analyses with scenario modeling at a lot, block, and neighborhood level. This is a great business, but it’s not particularly innovative as a model.
- The second line of business is entirely self-designed and the only one of its kind that I’m aware of. We partner deeply with the biggest and most innovative developers in NYC to serve as an analytical extension of their acquisition teams. We use our technology and analytics to identify above-market returns on real estate over a 5-year hold. We go in on acquisitions together, and we then share in the long term real estate economics right alongside our partners.
How the coronavirus pandemic affects your business, and how are you coping?
Cindy McLaughlin: Things were rough between March and July. Both businesses ground to a halt because real estate trading activity is a prerequisite for revenue. However, it’s been clear to us since the first days of lockdown in NYC that the fundamental shift in the market would help us in the end. NYC investment sales have been so depressed in recent years because prices have been much too high. COVID has, well, fixed that, and then some. Acquisitions activity is picking back up, with buyers looking at distressed assets and repurposing sites for the 21st century. If things continue in this vein, 2021 will be our breakout year.
We’re finding joy right now in helping policymakers in NYC think about how to rebuild the city for resilience and the future. It’s an exciting time in urban planning because of the quadruple-threats of climate change, pandemic, inequality, and the economy. Everything is on the table for our cities, from the use of streets to single-use zoning to parking, to walkability to adaptive reuse of buildings.
Did you have to make difficult choices, and what are the lessons learned?
Cindy McLaughlin: Sure. Like most businesses during this time, we had to pare back expenses beyond what we thought possible. However, because our team is so strong and close, we did everything we could not lose any of them, and to continue with IP development during the worst of it. I’m not sure what I would have done differently, honestly, except always to have as much cash on hand as possible.
How do you deal with stress and anxiety? How do you project yourself and Envelope in the future?
Cindy McLaughlin: Most entrepreneurs are optimists, and I’m no exception. I truly believe that we’re on the right track and that our future is bright. I personally try to be balanced: I exercise, I hang out with my family and friends, I take breaks when I need them. I encourage my team to do the same.
The writing we’ve done has also brought me a lot of joy because we’re trying to rebuild the city we personally want to live in. It’s all about how NYC can take a crisis and turn it into an opportunity to be greener, safer, more equal, more liveable, more human-scale.
Who are your competitors? And how do you plan to stay in the game?
Cindy McLaughlin: We have competitors of a sort – there are a handful of companies around the world doing zoning modeling. However, we’re focused on going so deep and so accurate in the most complex markets that we can use our analytics to buy our own real estate, which isn’t where any of these other companies do. It’s quickly becoming a buyers’ market, so our success should follow.
Your final thoughts?
Cindy McLaughlin: I’m grateful that my team and I are healthy and getting through OK. NYC, in particular, has been a tale of two cities — those of us who’ve been protected from the worst of COVID’s health and economic impacts, and those who suffered both simultaneously. Being aware of that disparity keeps us all working harder than ever to make sure that our policy recommendations are life-improving for all of us in this beautiful city, with special emphasis on the communities of color that were so hard-hit.
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